Iranian merchants resist new tax, accounting measures
Economic anxieties caused in part by the West"s financial crisis have
escalated tensions between President Mahmoud Ahmadinejad"s government
and Iran"s merchants as the country"s economic lifeblood, oil, headed
below $80 a barrel for the first time in more than a year.

On
Sunday, rug and fabric dealers in at least two cities joined an
unprecedented week-long strike led by jewelers in most major business
centers to protest the imposition of a 3% value-added tax and demands
for more transparent accounting practices by retailers.

Merchants in the traditional marketplaces of
Tehran and Tabriz shuttered their businesses Sunday even though the
government has agreed to delay imposition of the tax on many retail and
wholesale transactions for two months.

Whole sections of
downtown Tehran"s massive and labyrinthine Grand Bazaar were closed
Sunday, the second day of the Iranian workweek, people said. Though the
most powerful wholesalers were believed to be leading the strikes,
smaller shopkeepers also took part. Protesters angry over the tax
smashed a branch of the state-owned Bank Saderat, according to the
Borna news agency, which is close to the government.

The central
bank also demanded Sunday that Iranian merchants and other businessmen
with outstanding loans catch up on their payments. The move appeared to
be a sign that the government is hoping to make up for the sudden drop
in oil prices and the anticipation of prolonged worldwide economic
malaise.

"All bad debtors to the banks are warned to pay
back their installments in arrears," Mahmoud Bahmani, the newly
appointed central bank governor, said in an interview broadcast on
state radio. "If there"s more delay, they will be fined and will have
to pay the fine in addition to their debts."

This month, Iranian cleric Ayatollah Ahmad Jannati called the meltdown of capital markets in the West "divine punishment."

But
economists predicted Iran also would suffer badly from any slowdown
because of its dependence on oil sales. In recent days, the price of
oil has fallen below $100 a barrel, a threshold Iranian officials had
called unacceptable.

Tax revenue makes up only about a fifth
of the Iranian government"s budget, a weakness that authorities in
Tehran have vowed to address by clamping down on opaque accounting
procedures. Independent economists have lauded the new rules as a
necessary step to modernize the country"s archaic economy.

But
the new tax, which exempts foods, medicines and other non-durable
products, has fueled fears that already exploding consumer prices could
creep higher if merchants pass on the costs to consumers.

"The
strikes in the bazaar are the first middle-class reaction to galloping
inflation," said Saeed Leylaz, an economist and journalist often
critical of the government. A report by the central bank said inflation
for the Persian month ending Sept. 21 rose 29% compared with the same
period last year.

Conflicting political loyalties underlie
tensions. Bazaar merchants, a pillar of the 1979 Islamic Revolution
that brought Iran"s Shiite Muslim clerics to power, mostly remain loyal
to the conservative political faction led by Ayatollah Hashemi
Rafsanjani, a relative pragmatist and rival of Ahmadinejad"s who built
up his power base among the merchants during the 1990s.

Many
view Ahmadinejad"s economic policies as favoring companies close to the
Revolutionary Guard, an elite branch of the military, which relies on
government contracts and control over Iran"s borders for its wealth.

Iranian
authorities have long worried about the economic cost of sanctions
imposed over Iran"s refusal to suspend its uranium enrichment program
or a sudden downturn in oil prices, which had reached $147 a barrel
this year. To prepare, reformers have urged Ahmadinejad to slash
burgeoning subsidies on commodities such as sugar, wheat and cooking
oil. A move to ration subsidized gasoline sparked riots in Tehran this
year.

Iranian lawmakers approved the value-added tax in
January and it was scheduled to take effect Sept. 22, but protests
broke out among gold dealers in several major cities. Small-business
owners said customers grew furious when they tried to collect the tax.

"We
were cursed by every single customer who bought anything from us," said
Ali Hassani, a clerk at a stationery shop in downtown Tehran.

The
government suspended the unpopular tax for two months, a move one
former official described as politically expedient and illegal.

The
tax accompanies the new accounting requirements that make it tougher
for Iranian merchants to shield revenue from tax collectors, another
point of contention between businesses and the government.

"This
tax, which never existed before, will enforce transparency and touch a
privileged class," said Thierry Coville, a Paris-based French scholar
who is an expert on Iran"s economy. "The demonstrations are an
instinctive reaction from some people who are not used to paying taxes."

Often merchants pay taxes in one lump sum at year"s end, concealing much of their earnings by penciling in codes into ledgers.

"The
bazaar merchants have their daily journals and accounting methods which
can be deciphered only by themselves," said Hamid-Reza Taraghi, a
spokesman for the right-wing Islamic Coalition Party, which is close to
the merchants but supports the value-added tax. "The government should
train the merchants first to keep regular accounts and use official
cash registers so that everything will be transparent."

Sympathy
was in short supply for the merchants, who are perceived as having
benefited greatly under the Islamic Republic. Some called the idea of
forcing merchants to pay their taxes a matter of fairness.

"Generally speaking, people do not want to pay tax -- it is common
behavior everywhere," Jamshid Pazhohan, an economist, told the daily
newspaper Etemaad. "But regardless, those bazaar guilds who make
fortunes should pay appropriate taxes."